HC Deb 19 February 1930 vol 235 cc1446-80

I beg to move, That, in the opinion of this House, the effects of high taxation are detrimental to the progress of industry and commerce; and that existing taxation is too high, is increasing, and ought to be diminished. I move this Motion with some hesitation, because I am fully aware of my deficiency to deal adequately with this grave and serious topic, a topic usually treated with a great deal of acrimony and recrimination. Yet nothing is more important to the nation and to our industrial recovery than its proper and thorough apprehension. I might be regarded as one of those likely to object to taxation as a so-called wealthy man, but I do not bring forward this question in its personal but in its economic aspect. Having had the good fortune and the opportunity to take a practical part in providing employment for many thousands of men and women, and having had the privilege of inheriting the tradition of treating them well and looking after their interests, and of providing for their continual progress, as many hon. Members on the other side who have worked with us know, I feel entitled to bring this question forward in a serious vein, and to ask the House to join in a dispassionate examination of the economics of the question.

The first question which I ask is, whether a high rate of taxation is detrimental to the progress of industry? In order to determine this, it is first necessary to discover who, in reality, bears the taxation that is imposed by this House. We listen to Budget speeches, we discuss them at great length, and we vote upon them, but who pays, in reality, is a matter which is very often obscured. Although, when you hear all the arguments brought forward from the Treasury Bench, it may appear on the surface that taxation is going to be borne by one class or another class of the community, it is by no means certain that the taxation is borne in the place where the Chancellor of the Exchequer of the day intends it to be borne. It is my belief that a great many of these efforts are shots in the dark, which very often hit extremely different targets from those which they were intended to find.

In the economic system of the country as it stands to-day, one can largely rule out agriculture as a comparatively negligible quantity as far as national revenue and income are concerned. Therefore, one has to look to industry, to mining and manufacture, as the real source of revenue. Income from the land is mainly an income resulting from industrial activity in one form or another; in the present economic system, land can be looked upon as an interest-bearing security which enters, in a greater or less degree, into all our transactions. There are profits from pure finance as such, but these are for the most part dependent on industry or essential to industry, and one can safely say that industry alone is the real source of revenue in this country, and in one relation or another bears by far the greater part, if not the whole, of the taxation which is imposed.

In industry there are in reality only two charges. The first is wages, and the second is the return to capital. Except for the return to capital, all the costs to industry are wages costs. Raw material costs are, except for the capital return, wages costs in some other direction. But all costs are fundamentally wages costs, and all human endeavour can be set down to wages. Capital is essential in order to pay these wages, until the result of the endeavours of labour yield some return. Before the world accumulated adequate capital for the purpose, progress was lamentably slow, and human endeavour, which was largely agricultural, consisted in people picking up the best living they could in some primeval forest. They were unable to embark on any long distance work, because they had no accumulated capital behind them which would keep them alive during the process. Then, in the very early stages there was some accumulation of capital which enabled men to start on some form of work which achieved no immediate return. That was the commencement of capital. When it came, it was seen that it must receive a return, as it does in nature, in exactly the same way as the planting of seed corn makes a return to the man who plants it several times over. The representation of that seed in a factory—that is, capital—must receive its true and proper remuneration in an economic system. Capital must be remunerated at its own rate which is not a rate which is decided by some body of capitalists sitting in a room. Capital is not national but international; it is world wide, and it cannot be confined in any particular national system. It has the charm and elusiveness of the will-o'-the-wisp, both to the theorist and practical man alike. It comes and goes very easily when you have it.

Capital is of two kinds, fixed and liquid. Fixed capital is mostly represented by machinery, by money spent on work which has been done, and unless that machinery can earn a profit, it is simply money that has been wasted or lost; somebody has paid for making the machine that nobody wants. One of the greatest fallacies which I continually see put forward, very often by men of industry and frequently by economists, is that capital as represented by factories and machinery is necessarily a fixed asset. It is not necessarily an asset at all. It can become a complete liability, and unless it is making money and unless it is yielding a return, and a sufficient return, not only to remunerate the capital put into it, but also to pay for replacement and the wearing out of the machine, it is making a loss and is useless; the capital put in becomes obsolete. As against that, you have your money as liquid capital in the form of securities, coin, notes, bullion, land, and in any other form which is easily convertible at option for goods or services. If you curtail the earning power of liquid capital, you arrive even more rapidly at the same position as with fixed capital, because it is either very seriously impaired or disappears altogether.

We had a concrete example of that in this House not very long ago. The unpremeditated observation of the right hon. Gentleman the Secretary of State for War, on the subject of War Loan interest, produced a depreciation in War Loan of about two points. That was because he had given the idea that he might propose to restrict the interest. That is a very clear example of how capital can vanish. I have made no calculation, but I believe calculations have been made, as to the amount which this fall of ½ to ⅛ per cent. meant over the total amount, and it would be a very large figure. In this country money is represented very largely by a system of cheques based entirely on credit. The idea that so many people, even Members of this House, seem to have, that money in reality exists, is the greatest fallacy. Money is metaphysical in its character; it is not a pile of sovereigns in the vaults of a bank.

The UNDER-SECRETARY of STATE for AIR (Mr. Montague)

Did not the hon. Member say at the beginning of his speech that this money capital was what the workers lived on before the results of an enterprise came to fruition? Do they live upon metaphysics?


"Man shall not live by bread alone."


They live upon what they produce.


They live on bread, and in order to obtain that bread there is a very widespread organisation which brings them bread from abroad to feed them—bread which is not grown, and never could be grown, in this country. That is a fact which I would recommend to the attention of hon. Members, a fact which lies at the very bottom of the economic system of this country and one of the facts which puts this country in such a very dangerous position; because if the economic metaphysical system broke down, that bread would not be there, and I do not think the workers would like to eat the bank deposits, which are the only form of money which exist.


The wheat which comes from abroad is paid for by goods produced by workers here.

Mr. DEPUTY-SPEAKER (Mr. Dunnico)

The hon. Member is entitled to state his case and ought not to be interrupted so often.


I think there will be plenty of opportunity for hon. Members opposite to state their case. Further to the point I was making, one can take the case of the destruction of capital both in Germany and Russia. Both those countries, where their credit has been destroyed, have been seeking capital throughout the world ever since, and have never managed to get hold of enough. There you have two great countries, one of them one of the greatest industrial countries, and the other one of the greatest agricultural countries, both crippled to a greater or less degree by the lack of capital, which has, in fact, disappeared. That is an actual matter of fact to which I would direct the attention of hon. Members opposite, who seem to imagine that these things exist in a concrete and not in an abstract way.


May I ask—


I would suggest to the hon. Member that he should put his point at a later stage. As capital must be remunerated at its own world rate or vanish there remains only one variable in the mercantile and industrial system, and that is wages. Nobody in this country wants to see wages vary downwards and, as a matter of fact, the trade union system makes it extremely difficult for the wages to be varied. Nowhere are the workers better organised to maintain their standards of living, and I, for one, am very glad indeed to see that that is the case. But the economic results of that position have to be faced. There are only two possible sources from which taxation comes—the return on capital which, as I have shown, is largely fixed, and the wages paid to the workman, which are not fixed, except by their trade union organisation and that is why, when taxation is imposed, it falls in the long run, and for the greater part, on the wages of the workmen. It is there alone that we get the continual economic restriction which is holding this country back to-day.

It is perfectly true that in the case of moderate taxation the lag that exists in the fulfilment of the economic law is probably not taken up for a long time, and taxation may be borne in a great many different quarters without any particular strain on the economic system as a whole; but where taxation is heavy, and as it becomes heavier, so you get increased disturbance and great economic friction as the tax is passed on, as it must be, to the wages of the workmen. That is not done at the volition of any particular capitalist sitting in his room wondering how he can pass it on; it is a natural operation over which no one has any control, and over which the State would have no control whatever. Even if it owned all the factories and all the capital in the country the position would remain precisely the same. The ownership makes not the least difference; that is what would happen in any event. The result is that you get a restriction of industry, you get stagnation, and you get lack of enterprise and initiative, because you are asking industry to shoulder a double burden, first, of wages which are prevented from coming down—and I am very glad that is so—and of return on capital, which cannot come down; and so the customer is called in to ease the burden. Very often prices go up, or perhaps he does not get the reduction that he might have expected to get, but in one form or another it is through the customer that complete readjustment has to take place.

It is often argued that industry earns a higher rate of remuneration than is justified. As a matter of fact that is another great fallacy. The total return to capital is something between 4 per cent. and 6 per cent. at the present time; that is a world figure, which does not vary very much in any country. It is true that some institutions trading for profit or manufacturing for profit may make 100 per cent., and others may lose 100 per cent.; it varies with the skill and the good fortune which attend their enterprises. It is argued that national ownership would save capital, but that is very far from being the case. At the present moment national capital is managed by a vast committee of millions of small investors, governed and selected by the rule and law that a fool and his money are soon parted. All you would do, if you concentrated this money under one hand—under one committee, possibly a Cabinet—would be to provide a body of people, very likely selected, under popular franchise, for their gift of the gab rather than for their knowledge of finance and industry, with the opportunity, by mischance and mismanagement, of losing the whole lot with even greater rapidity and facility. The cry of "the idle rich" in the matter of taxation will not wash. It is a very useful one, and it serves the purpose of hon. Members from time to time; but it really does not represent sound economics. The idle man is not rich very long, and fools, who may exist in all walks of life, attract more attention in the case of the wealthy than possibly in the case of those less fortunately situated; but the psychology of wealthy scamps is the same as the psychology of scamps in other walks of life.

It must be realised that there has never been a wealthy country without wealthy people in it. In the United States the federal income tax return for 1928 showed that the number of people with incomes of more than £200,000 a year was 496, an increase of 206, or about 40 per cent., and that there were 20 people with more than £1,000,000 a year, as compared with 11 in the previous year; and yet we, sitting here, envy from time to time the great and growing prosperity of America and the fortunate situation in which the workers of America find themselves, their high standard of living, their high wages and everything else in which that great country abounds. I just make that point to show that great wealth spreads throughout the whole community, and it is idle to say that a rich class in any way affects or depreciates the wealth of the other parts of the community. You will find that in a community where the conditions have brought riches and improved standards to the working class there is usually at the top of the scale a number of extremely wealthy individuals.

American prosperity has not been produced by high taxation. Our taxation is 250 per cent. heavier than taxation in the United States. We pay £16 a head in taxation, and in America they pay under £6. Compared with France, our taxation is 58 per cent. heavier; and compared with Germany it is 100 per cent. heavier. Those countries are reducing taxation, and not increasing it. In the United States a out of 1 per cent. in the income tax is foreshadowed, in France there is a reduction of taxes amounting to £11,500,000, and in Germany every kind of industrial tax is to be lowered and the income tax is to be reduced by a progressive reduction of 25 per cent. in the next five years. Those taxes are to be reduced in order that the industries of those countries may recover with the greatest possible speed, and get back to prosperity. We are not reducing our burdens. In this country this year we have added £8,500,000, and next year we are adding £21,000,000.

This is the question which underlies the fundamental principle of the whole of this topic—whether it is possible to use taxation as a means of redistribution of national wealth without causing such a diminution of industrial progress that it makes the worker no better off than he was before. What you want to arrive at is not national redistribution, but national prosperity, with high wages, and in order to get high wages you have got to have good prices and low taxes. To obtain the first it is necessary to eliminate competition with low wage commodities, and to obtain the second it is necessary to eliminate Socialist Chancellors of the Exchequer. This Government offers no possibilities of either of these happy events coming to pass. So far as I can see, the best chance of their coming about through the party opposite is by the continual growth and development of the trade union movement, the members of which are taking more and more interest in this House and are studying taxation and finance in relation to industry in a practical way, and are coining to some interesting conclusions on the subject.

6.0 p.m.

Nothing is more apparent than that continual new impositions by the Treasury have to be met out of industry, and that means that commerce and manufactures are crippled and confined, and workmen's wages are poured into Whitehall and are doled out again all over the country at the rate of about 17s. to the £. Let us leave the earnings of industry where they are earned, and not be continually dragging them up to Whitehall in an attempt to redistribute them on a different basis. High taxation produces a series of economic falsehoods which destroys the incentive to the accumulation of capital. It is a very undesirable thing to destroy the habit of thrift, which is acquired with great difficulty anywhere except in Aberdeen; and any national action which tends to reduce the thrift of the people in the long run only leads to a diminution of the amount of return on capital which is available and which is necessary to our prosperity. High taxation makes borrowing an economy. It is an extraordinary fact that it is so much cheaper to form a company anywhere else in the world than in the City of London. In dealing with industry to-day you will find that in international negotiations foreigners will always stipulate that it must not be an English company in London, because the cost is so high and the taxation imposed is so great. As far as direct taxation on industry is concerned, nothing is more important than that there should be a relief of taxation on undistributed industrial reserves of industry which constitute the whole, bulwark against bad fortune, because it is a defence against the big changes which may have to be made as a result of technical progress.

There could not be a greater mistake than to say that it is impossible to make a differentiation between industrial reserves and other accumulations of this character. An arbitrary division will have to be made and could be made, and I would appeal to the Chancellor of the Exchequer to take this matter seriously into consideration in the next Budget. I am sure that the right hon. Gentleman would find in the long run that the results to industry would repay him for employing this particular form of relief. Unfortunately, these are not considerations which move the Chancellor of the Exchequer because he is actuated by wholly different motives. The right hon. Gentleman seems to me rather to enjoy the petty side of national finance and the meaner aspect, whether the victims suffer under his maladministration, or. whether a few poor fools excite his avarice or offend his temperance principles by the conjunction of unnecessary expenditure and good spirits. A few quotations from the right hon. Gentleman's article in the "Morning Post" of February last year will be sufficient to show the principles which are really behind his camouflage of serious economics. Writing in the "Morning Post," the Chancellor of the Exchequer said: The existence of a rich class is responsible for the poverty of the mass, and for the social evil of the slums, physical deterioration, ill-health, inadequate education and industrial inefficiency.

[HON. MEMBERS: "Hear, hear!"] That quotation seems to find approval with some hon. Members opposite, but I would like to refer them to the United States as a complete contradiction of what lies behind that statement. The quotation proceeds: When money raised by taxation is spent in these ways we have the assurance that it is saved, whereas if it is left with the individual, there is no such assurance, but the reasonable assumption that it will be wasted in luxury and riotous living.

That seems to cause no comment amongst hon. Gentlemen opposite. The quotation goes on: There is a case for the heavy taxation of very large so-called 'earned' incomes, because they have in them a large element of 'social increment.'

It is clear that the Chancellor of the Exchequer not only believes in increased taxation, but he would if he dared largely increase taxation in order to provide himself with the opportunity of bringing about his idea of the chimerical equalisation of wealth by means of general taxation. The right hon. Gentleman seems to me to Buffer from such an inflammatory condition of myopia that he no longer cares for economic truth, providing that he can imagine himself at the head of a sort of fiscal reformatory. In all these matters, unfortunately, the burden will fall upon the wage-earners. The national income is distributed in a peculiar manner, and on ths point I should like to give a few figures. The sum of £90,000,000 goes to about 300,000 unoccupied persons, and the State takes a large proportion of that sum. This 300,000 goes right down to spinsters living on invested incomes, to widows, and to pensioners, and others with under £150 a year. Another £780,000,000 goes to 2,700,000 occupied persons who are doing some kind of work for the earned part of their income, which is really too small to bear very much more tax without entirely ending their private savings, and they are the people who are the greatest sufferers from high taxation. About £880,000,000 goes to higher salaried and professional people, and I think it would be very unwise to penalise this important class any further, because you might discourage them from exercising their special abilities. The ordinary wage-earners receive about £1,900,000,000. [An HON. MEMBER: "What about the Supertax?"] That is quite another matter, and it is not one with which I propose to deal at the present moment. That £1,900,000,000 forms a permanent fund on which the State relies for the bulk of its revenue. That is where this form of taxation finally ends in almost every case.

Hon. Members opposite do not seem to like that idea, but it seems to me that they approach this question from the wrong angle, because economics and morals are two very different branches of philosophy, and when they are mixed together to supply political party pie for street-corner consumption, the result is very indigestible. I should like to ask the Financial Secretary to the Treasury whether he has ever heard of a wealthy country without a wealthy class? If the Financial Secretary in guiding the financial destinies of this country has ever heard of such a country, I shall be very glad if he will mention it, because I have never discovered one in my reading of history or of finance.

There are other hon. Members who wish to deal with this very important and serious problem, but there is one thing which I should like to say in conclusion. The theory of high taxation strikes at the root of all sound economics. This country, Europe and the rest of the world cry out for a real and lasting recovery, and that can only come about by the accumulation of capital savings of the people in small streams and small amounts year by year. That is a long and painful process, but the earning of the capital will provide the income by which the world can return to prosperity, and it is by this means alone that real prosperity will come back to this country, a prosperity based not upon spending, but upon saving. That is the kind of saving which is so much affected by any increase in taxation. This saving has to go on slowly, a little at a time, and it is only in that way that the world's capital, which was impaired, dispersed and destroyed by the War, can be built up again. The building up of that capital by earnings is the world's real income. Any attempt to finance the industrial world in any other way is bound to end in disaster.

Since the Chancellor of the Exchequer assumed office he has been agreeing with all sorts of things, but he seems to have recanted many of the theories which he advanced when the glow of office was impending. At one time I had come to look upon the Chancellor of the Exchequer as the strong man of this Government, and believe he has been called "The Iron Chancellor." I cannot understand the right hon. Gentleman's deflection since the responsibilities of office descended upon him. It may be that we were wrong in our estimate of the quality of the iron and that we have, perhaps, not an Iron Chancellor, but a corrugated-iron Chancellor. No one desires to see progress and prosperity in this country more than I do, but such a development must be a cumulative tendency made up from many directions. We have in this country beyond any other country in the world geographical and natural advantages in skill, both amongst the workers and in regard to administration. We have a technical skill which is second to none in the world, but any attempt to force a national redistribution of wealth by means of high taxation can only have the result of bringing with it poverty, despair and starvation to the millions to whom we in this House are responsible. Therefore, I ask the House to agree with this Motion.


I beg to second the Motion.

I do so with great pleasure, because I am sure that hon. Members on both sides of the House will agree with me in most sincerely congratulating the Mover on having made an extraordinarily interesting and stimulating speech. I am in a position of great difficulty at the moment, because my hon. Friend has left me extremely little to say from our point of view on this side of the House. I do not think that there was any aspect of this question upon which he did not touch, and touch so well that I can add very little. I want just to throw out a few suggestions. Except in so far as some hon. and right hon. Gentlemen opposite are concerned, this is not really a political issue at all. The objective of what I might call the Left Wing of the Labour party in this country is avowedly the redistribution of wealth in this country, and the use of the powerful engine of taxation in order to bring it about; but that view is certainly not shared as yet by the majority of hon. Members opposite, and, therefore, I think that with that exception we can say that we are considering this question to-day, not as a matter of purely party politics, but from an economic point of view.

I would like to point out that we in this country at the present time do form part, whether we like it or not, of an international system of trade and industry and commerce. We cannot get away from it; indeed, in some respects it would be a very bad thing for us if we did get away from it, because probably we are the greatest money-lending centre in the world. It is part of our business as a nation to lend money to other countries. We do it with the greatest mobility and with the greatest facility and speed. [Interruption.] An hon. Member opposite says that we do not gain anything, but, in point of fact, we gain a great deal by lending money to foreign countries, and hon. Members opposite and those whom they represent gain also, by the social services rendered to the people of this country through the taxation levied upon the profits which we make by lending money to foreign countries, and which help materially to give us the finest system of social service and insurance of any in the world. I think it will be agreed, even by hon. Gentlemen opposite, that it is a better system of social service than is to be found in any other country.

If we accept the fact that we are part of an international system, and that we lend money with the greatest fluidity and mobility to other countries, we must also face up to the fact that at the present time, chiefly owing to the high rates of taxation levied in this country, there is less return upon capital in this country than there is in most foreign countries. Most foreign countries are able to pay the lender of capital a higher rate of interest. He gets a bigger proportion of his money out of the products of industry in Germany, France, America and many other countries. What does that mean? It must, and in fact does, mean that capital will flow out from this country into other countries. The Chancellor of the Exchequer, in replying to a question in this House the other day, deprecated the idea that we in this country should seek to put any check upon that outflow of capital from this country. Mr. Keynes takes a different view. On the whole, I agree with the Chancellor of the Exchequer. I do not think that we can possibly afford to check the outflow of capital into foreign countries from this country. We are very largely dependent upon it for our present position. But the reason why it is going out to foreign countries is because it can earn more there than it can here, and the reason for that is chiefly that, as my hon. Friend has pointed out, taxation in this country is so very much higher—in some cases 100 per cent. higher—than the taxation in the countries to which that capital goes.

In this country during the last 10 years we have, in my opinion, tried to achieve the impossible, and that is one of the reasons why we are going through very difficult times at the present moment. In 1919 we decided to restore the gold value of the pound to the pre-War parity of exchange with the dollar. I am not going into that question now, but I have always had my views upon it, and I think that that decision is very largely responsible for the difficult condition in which our exporting industries find themselves, and, above all, for the difficult condition in which agriculture finds itself, at the present moment. I do say that, in the position in which we found ourselves, immediately after the War, it was over-ambitious to attempt to restore the pound to its pre-War exchange value. What has followed? Since 1919 we have, more or less invisibly, increased the real value of wages in this country by no less than 10 per cent., and hon. Members opposite ought to realise that fact. In addition to that, we have imposed this very high taxation which, as I have said, makes capital leave this country. Finally, we have decided that, although we form part of an international system, we are not going to put any form of Protection against the import of manufactured goods made under strikingly different conditions from those which obtain in this country. I do not see how any large industrial community such as we are, occupying a small island, unable to feed itself or provide itself with raw materials, can be expected to survive indefinitely under these conditions, with a higher taxation rate than any other country, a higher wage rate than any except the United States, and a wage rate which has been increased, by the return to the gold standard, to the extent of no less than 10 per cent., almost as it were, when the workers were not looking, and also without putting any form of Protection or duty against the import of manufactured goods. I do not see how such a community could carry on that process without suffering very considerably.

Reverting to the actual subject under discussion, namely, high taxation, what does that mean? It must involve, and I challenge any hon. Member opposite to deny it, a check on the investment of capital in the heavy industries of this country. I am one of those who believe, with many hon. Members opposite, that the complete reconstruction, or rationalisation, as it is called, of the British heavy industries, is the most urgent requirement at the present time if ever we are going to compete again as a first-class industrial Power. We are about 10 years behind our rivals, both in America and in Germany, so far as the organisation of the iron, steel, and coal industries is concerned. We are gradually and painfully trying to catch up, and we have made some headway recently; but the rationalisation of the British heavy industries will never be carried through unless a substantial flow of capital into them can be maintained at a reasonable rate of interest, and the present high taxation is one of the causes of capital not flowing into British industries, but, on the contrary, flowing into those very industries abroad with which we are in the fiercest competition. This decreases the amount of capital available for the use of industry, but it also decreases the margin of living expenses when it is applied to individuals in the form of Income Tax and Surtax. That must mean, so far as it is carried out, some reduction in savings, and that, in turn, must involve a slackening of demand. Hon. Members opposite are always talking about demand and about purchasing power. High taxation does more to diminish purchasing power than any other single factor.

In addition to checking the flow of capital by way of investment into the heavy industries of this country, high taxation, to an even more marked extent, checks the development of completely new enterprises. The whole essence of the capitalist system, which, whatever hon. Members opposite may think or feel, still operates in the world, at any rate outside Russia, is that the man who is prepared to take risks—and really hazardous risks—must get a reasonable return upon the capital which he expends when he is starting a completely new enterprise. Many hon. Members opposite will admit that, although they think it desirable to nationalise some of the basic services, or even industries, in this country, they do not, at present at any rate, intend or propose to nationalise new industries. In the case of the new enterprises which are just getting under way, what we are doing in this country by our taxation at the present moment is cutting down the profits which any man might reasonably anticipate if he were to go into the somewhat hazardous business of starting an altogether new industry or enterprise. I am certain that, in nine cases out of 10 at the present moment in this country, people are deflected from that course by the thought that, even if it comes off—and under the capitalist system there is almost a 50 per cent. chance that it will not—they will not earn on the capital they expend a sufficient amount of profit to make the thing worth while, and, accordingly, they would much rather turn over their savings into some industry in America or in Europe, or, if you like, into some municipal enterprise in Europe, where they will get a safe return of, perhaps, four or five per cent. on their money, and they will not bother to launch out into new enterprises. That means less expansion, and checking both the flow of capital in to the heavy industries and the establishment of new enterprises, and the effect of both these checks due to high rates of taxation is to raise the rate of interest and to increase the cost of production.

I spoke just now about the slackening of demand. That must mean a decrease in productivity in the general production of this country, and I want to point out to hon. Members opposite, as my horn Friend the Mover of the Motion pointed out, the extraordinary situation in the United States of America at the present moment. There there is a cycle in operation which is almost the direct antithesis of what is happening in this country. They have got increased production, involving increased wages, and these two factors in combination are bringing about a decrease in commodity prices. It has been proved during the last seven or eight years that these three things can go forward together, and that you can at the same time increase production and wages and reduce the cost of living commodities. This is what the United States have proved. What is happening in this country? We are writhing in a sort of vicious circle of decreased production, lower wages, and higher commodity prices, and it seems to me that that process is bound to continue, and can never be checked, unless and until we can bring about some reduction in the volume of general direct taxation.

When it comes to the question of public as against private expenditure, I am perfectly prepared to admit that it is a matter of the most delicate balance as between the advantages of the two. I should be the last to advocate the ruthless cutting down, for example, of the social services of this country, simply in order to save direct taxation. I think that our system of industrial insurance, health insurance and pensions is a magnificent and fruitful method of spending the money which ought to be taken out of industry and out of wages, as it is in fact, because all taxation ultimately comes out of wages. That is money which ought to be taken out of those wages in order that it may be more profitably and more scientifically spent by the State. I am perfectly prepared to admit that, but I say that there is a just balance in this as in all other things, and we must compromise. Compromise is an essential condition of modern existence, both in private and in public life.

When, however, we come to the question of productive as against unproductive expenditure, then I say that I am all out for productive expenditure, and the complaint that we on this side of the House have against hon. Members opposite is that they have concentrated, ever since they came into office, upon wholly unproductive expenditure, and have let productive expenditure go by the board altogether. Develop the capital resources of this country if you like, develop your docks, develop your harbours, spend the money so that you may hope to get some return upon it some day; but it is no use carrying on an endless process of just shovelling out money in the form of unchecked doles for doing nothing and of pensions upon which you can never expect to get any return, in any circumstances.

I was not entirely opposed to some parts of the policy put forward by the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) at the last Election. I thought that he concentrated far too much on roads, and that the amount he proposed was too large, but I am prepared to see the Government raise a loan and spend the money productively in order to establish a short-term policy for dealing with unemployment. But a Government can only do that if their credit stands high, and I am afraid that the present Government has no hope of raising a loan anywhere merely for unprofitable expenditure. To what, then, are they reduced? They are reduced to increasing and piling up taxation in order to pay for their unproductive expenditure. If they are ever to get any money out of the taxpayers at all, it is necessary that the capital shall be replaced. The old capital must be replaced and new capital must be accumulated, and that is quite impossible if unproductive expenditure is allowed to run riot, as my hon. Friend has pointed out that it is doing in this country at the present time. You cannot seize wealth from the people and at the same time prevent people from producing any wealth, and that is what hon. Members opposite are attempting to do.

It seems to me that one of the main difficulties confronting economists and politicians in, every country is to try to adjust supply to demand. That is really the essence of the whole economic problem. I agree that you have to keep up the consumer's income to keep pace with the capacity for producing goods. If you bring it higher than the capacity for producing goods, you are drawn into an inflationary process. Taxation is taken out of wages just as much as is it taken from the middle class or from the well-to-do people. There is nothing that is more certainly calculated to reduce the purchasing power of the whole of the people of the country than excessive, injurious and oppressive taxation. It never pays, as Mr. Keynes pointed out, to render the entrepreneur or the producer poor. We have to try to bring some assistance to the producer as such. Only one attempt has been made in the last 10 years, and that was in the derating proposals of the last Government. That is the only constructive attempt that has been made since 1918 to bring assistance to the actual producer of wealth as such. [An HON. MEMBER: "What is it doing?"] It is doing a lot of good. But for it you would have your unemployment figure up to 2,000,000 and more.

We are living under capitalism, and we are going to live under it for another 200 years, at any rate. We shall not know anything about Socialism. We shall be spared that. The whole of capitalist industry depends upon confidence. There is no confidence in the country to-day. People feel that they are sagging, that they are going down, that there is no hope. They know perfectly well what increased expenditure the Chancellor of the Exchequer has already imposed. They do not know what expenditure he may not propose in the future. They know it is all unproductive and it all has to be raised out of taxation, and they feel a sense of heavy oppression and apprehension with regard to the next Budget. When you have a psychological atmosphere of that kind and a total lack of confidence, you will never get business or trade, or commercial or industrial expansion of any kind. What the poor people of the country have to put up with, what with the Chancellor of the Exchequer, Lord Beaverbrook and Lord Rothermere! All they want is to be allowed to lead a quiet life. They want confidence and a suitable foundation and a reduction of direct taxation. The rich never did anyone any harm, except possibly to themselves by over-eating and drinking, but the poor do a great deal of damage. I hate the poor. George Bernard Shaw hates the poor, too. I want to eliminate them and get rid of them. In order to do that, I want to remove some of the root causes of poverty, and I am certain that oppressive and injurious taxation is one of the root causes of the poverty of the people.


I intervene for a few moments in what ought to be a Private Member's Debate, because I think a few words will be required from me explaining the Government attitude on this question. This matter of taxation is one on which we all have a feeling in favour of having no higher taxes than is necessary and, in so far as that is the purport of the Motion, I am sure we are all agreed, from whatever section of the House we come. But, in fact, the Motion is something very different. It has been considered by the two hon. Members who have spoken from the point of view of politics, and in the case of the opener certainly party politics, and from the point of view of economics, and it can also be considered as a social question. I would say to the Mover that, when he has been a little longer in the House, he will know that if you want to have the House discuss a question quietly and restrainedly from an economic or a scientific point of view, it is not very desirable to drag in party political issues. It is very easy to deflect the Debate in consequence of a series of cheap gibes such as he made at the Chancellor of the Exchequer, into a purely political atmosphere. I am going to refrain from that except to say two things. The hon. Member who moved the proposal, in the terms of his Motion attacks the late Chancellor of the Exchequer, because he says present taxation is too high. The taxation we have at present was imposed by the right hon. Gentleman the Member for Epping (Mr. Churchill) and comes as a result of four and a-half years of the party to which he belongs. The right hon. Gentleman, apart from reductions that he was able to make in his first year of office as the result of the way finances had been conducted before he came into office, did nothing but put on taxes of all sorts and kinds during the whole period of his term as Chancellor of the Exchequer. [An HON. MEMBER: "Does that apply to the Tea Duty?"] At the very end he made one or two slight remissions, but in the main his whole work was to put on taxes. The hon. Member who seconded the Motion also attacked the late Chancellor, because he attributed most of the troubles through which we are passing to the direct action of the right hon. Gentleman in restoring the gold standard.


I was careful to point out that that policy was decided upon in 1919. My right hon. Friend only completed the process which was carried through by every successive Government after 1919, including the Labour Government of 1924.


The hon. Member can make a point of that kind if he likes, but the step which in his opinion was not only a fateful, but a fatal step, was taken by his right hon. Friend. So that if it comes to a political issue, both the Mover and Seconder showed that they differ fundamentally from the late Chancellor of the Exchequer in his actions in these matters.

I dismiss that side of it. I want to come to the economic issue. It is true that, in certain circumstances, taxation can be a hindrance to industry, but it certainly is not true in the indiscriminate way in which the Mover put forward the proposition. In order to buttress it up. he brought forward a great deal of muddled economics. Stripped of phraseology, what are the three claims in favour of believing that high taxation cripples industry? The first claim is that it enters into the cost of production, and thereby makes it difficult to compete with other countries, where taxation is different. The answer is that it entirely depends on the kind of taxation imposed. There is the definite assertion of the Colwyn Committee to that effect. [Interruption.] The Noble Lord's knowledge of economics no doubt, surpasses that of all the Members who sat on the Colwyn Committee, but I prefer to take their considered judgment to taking his. They said perfectly distinctly that direct taxation did not, in their opinion, enter into costs. The second claim is made that high taxation checks the flow of capital. That, again, entirely depends on what the taxation is for, and the source from which it is taken. A great deal of the taxation we have at present is required to pay interest on the War debt and to pay off capital, in so far as it is done at all, by means of a Sinking Fund. Do hon. Members really maintain that such transference of money has the effect of withdrawing capital from industry? The third claim is that money taken in taxation reduces the demand for goods. That is wholly false in this sense, that if the money taken in taxation is spent in other ways, the demand for goods owing to the expenditure of the money, the proceeds of taxation, is exactly equal in amount to the demand for goods which would have been exerted by the people from whom the money is taken. That claim, in the way in which it is made, is wholly incorrect.

Those are the facts with regard to the economic question. I turn now to the social side. What really is at the back of the mind of a great number of people who are misled by a Motion of this kind? I am sure that what the Mover of the Motion is trying to get at is that high taxation exists because of certain expenditure which has been decided upon as necessary in the opinion of this House. We do not raise a penny more taxation than we need in order to finance expenditure. The right hon. Gentleman the Member for Epping, of course, did not raise all the money he required for expenditure by taxation. He raised a great deal of it by borrowing and a great deal more by pilfering. He evaded the full taxation burden that he was, in fact, imposing on the community, so that they appeared to escape it by the camouflage that he succeeded in putting up. But what is it that most of those who support the Motion really have in their minds? What do they want to cut out of the expenditure of the State? Do they want to cut down the Army and Navy? On the contrary, to a very large extent they oppose the reductions that this Government is making, and believes it perfectly safe to make, because they want a particularly large Army and Navy. Do they want to cut down the interest on the Debt? They do not want that. They would hold up their hands in horror if we proposed anything of the kind.

What they are really out for is to cut down the expenditure on the social services. [HON. MEMBERS: "Hear, hear!"] "Hear, hear," they say. They do not want us to give the children better education which is going to cost more money. They do not want to see the pensions scheme improved and advanced. They do not want to see these things. They believe it is more important to have the money in the hands of private individuals than to take it in the form of taxation to benefit the people through social services. If they have their way they would not only oppose the social services which are being put forward by the present Government but they would, and in some cases actually did, oppose the social services which even the late Government put forward. We take an entirely contrary view. It is because we take an entirely contrary view on that question and believe that the social services are of vital importance not only to this country but indirectly to the industry of this country that I for my part—and I am quite sure that I speak for the Government—could not possibly support this Motion, even though on the face of it the reduction of taxation sounds a thing with which we could all agree.


The House is indebted to the hon. Member for East Toxteth (Mr. Mond) for bringing forward a Motion which allows us to discuss very widely and fully the effect of taxation upon industry. The whole House would readily agree with the broad substance of his Motion that high taxation is in itself undesirable. No community of people really wants taxation, certainly not taxation for itself. One is reminded of Mr. Gladstone, who, when he was dealing with a Budget which was very small as compared with our present Budgets, stated that what was desirable was to leave money to fructify in the pockets of the people, and on that broad statement I think the House will be more or less in agreement.

There are one or two points on the broad statement as applied to the existing facts of to-day put forward, both by the Mover and by the Seconder of the Motion to which I should like to draw the attention of the House. I want, first of all, to remind the House—it has already been pointed out by the Financial Secretary to the Treasury—that a great deal of the present expenditure of this country is due to the service of the War Debt. When we compare this country with the two countries which were mentioned by the Mover of the Motion—Germany and France—we must, for a moment, compare the position of this country with those countries as regards War Debts. Germany succeeded in wiping out entirely its internal debt by the printing press, with the entire disappearance of the old German mark. The company with which I am connected happens to possess quite a number of old German marks, but they do not appear in our balance-sheet as an asset. France did not go as far as that, but France, by a process of stabilising the franc at five times its pre-War value has —[Interruption.] I think I was right. It was 25, and it is now about 125. I think that my figures are approximately correct. France has succeeded in wiping out 80 per cent. of its capital debt and 80 per cent. of its annual charge. If we were to follow that same course, we could very considerably reduce the taxation of this country.

The hon. Member who seconded the Motion referred to the stabilising of our currency on the pre-War value of the dollar and the gold standard. What we did, and I think the House should recognise this fact, was to give a definite bonus to capital. I am speaking purely from memory, but I think that the pre-War value of money lent to the State was round about 3 or 3½ per cent. Consols stood somewhere round about £70 in pre-War days just before 1914. That was the standard pre-War rate at which capital was prepared to lend money on the finest recognised security of the world, the credit of the British Government. From that basis of money lent to the British Government, all demands for capital are related. You get a higher return on capital according to the increased risk, and you find, as those various speculative investments become solvent, that, if you try to get into them, you may buy a pound's worth of original capital, but, if it is making a 20 per cent. return, you cannot get it at £1, but have to pay a sum commensurate with the risk involved. Hon. Members would see that if they entered into speculation in tobacco shares at the present time.

There was another point which struck me when I was listening to the statement made by the hon. Member who opened the Debate. I think we have to recognise that it is true that the whole of the interest charges on capital does come out of the possible wage fund. I do not think that it is correct to say that all taxation comes out of wages. It does not come out of wages; it comes out of the product of industry. That is not wages. Wages are only part of the product of industry. [An HON. MEMBER: "They say that it is the whole."] The possible wage fund and the actual wages received are not necessarily the same. At any rate, the wages paid to-day are not the whole product of industry. It is perfectly certain that all taxation does come out of the total product of industry. In other words, wealth does not produce itself. The Mover dropped into a certain fallacy when he referred to the loss of wealth owing to the statement, I think it was, of the War Minister which reduced the War funds by two or three points. There was no loss of wealth in that transaction at all. What simply happened was that certain people got frightened and sold their holdings, and other people bought them. The people who sold later on wished that they had not done so, and the people who had bought were glad that they had done so. The actual amount of wealth was not changed at all. It was simply a case of speculation in which money was transferred from the pockets of certain individuals to the pockets of other individuals. The only point of value to bear in mind there is the question of credit and confidence. In industry, that is a very Teal question, and it is the only thing which this country has gained as a result of the transfer of the gold standard. We have unquestionably, by means of the gold standard, secured an increase in the credit of this country as regards the other countries of the world.

This question of the incidence of taxation on industry is, in my judgment, one of the most important questions that we can consider. I would rather not consider it so much from the point of view of the Mover and Seconder of the Motion, who seemed to be regretting the whole volume of taxation. The question involved is as to whether the State is spending that money better or worse than the individuals who possessed it before. That is the question involved in dealing with the whole volume of taxation. Taxation does not destroy wealth. All that it does is to divert its use, taking it from certain individuals who might have spent it in another way, and expending it, through the State, in another form.

This House is quite conscious of the astounding experience which we had during the War years when State expenditure was abnormal, when trade and industry throughout the country was making profit so fast that they did not know how to stop making it, and when we introduced the Excess Profits Duty. We had a condition of affairs in which all trades and industries throughout the country were as prosperous as they could be, and it arose from a vast expenditure of public money by the State. It was realised that we could not go on many years longer doing that. There were, some people who were very much exercised in their minds as to whether in the end the problem of the War would not be a problem as to whether the manpower of Germany would outlast the money-power of the Allies. We could net go on indefinitely spending money of the State because there was a process going on at the same time, a process of inflation arising from the increase of debt and prices. That process of inflation which gives the appearance of prosperity, and to a certain extent for a short while actual prosperity, is very similar—in fact, I am not sure whether we might not say that it is exactly similar—to the individual who is spending beyond his income and is able to make a, very fine show and have a very bright and happy time as long as his credit lasts. But the moment his credit stops down comes the crash, and the bigger the credit the larger the crash.

I would like to ask the House, and the Treasury bench in particular, to take this broad point into consideration. Industry in this country is bearing not merely the taxation which is levied by the State but also the taxation which is levied by the landlord. I do not mean the men who build shops and factories and so on. I am not talking of the capital invested in land, but of the taxation levied by the landlord in the steadily increasing rise of land values in this country. The whole amount of that added value on land—I am not considering the remedies—is further taxation of industry. It is the first charge. What you want to do as far as possible is to avoid making taxation a direct incidence on industry in an increased cost of production. What are the things which affect the actual problem of industry? I am going to claim that a direct tax on income does not increase at all the cost of production. I will tell the House what it is bound to do. The present method of levying Income Tax is so horribly unfair that it does increase the cost of production.

7.0 p.m.

The point has been raised of taxing reserves in business. It is a very important point. The system under which Income Tax is levied in this country not only taxes profits on industry but also taxes every effort to raise capital. I will give a simple illustration. Take a small but expanding business making, according to its profit and loss account, very large profits. These profits do not consist of liquid capital. They may consist of developments in the business, and of stock-in-trade. If the Chancellor of the Exchequer would only accept his Income Tax in either book debts or stock, many of us would be glad to give him stock. As he will not do that, one has to raise capital. If you raise the capital, you are immediately taxed upon the raising of the capital. Of the whole of your legal expenses involved, of the whole of your Stamp Duty paid, not a single solitary expenditure incurred in raising this capital is allowed to be charged against the profits of the business. You have therefore to pay taxation, not merely upon the money reserved in the business and not distributed, but also upon these inevitable, unavoidable expenses in the business, and to that extent Income Tax is a direct tax on the productivity of business.

The bulk of the taxes to which we ought to direct attention are those which are levied irrespective of profit". I am speaking on this matter purely for myself and putting broadly what I consider would be the biggest reform we could have in the incidence of taxation. I would like to clear away the whole of indirect taxation. The unfortunate thing is that we, as a British public, hate direct taxation and do not mind indirect taxation. Hon. Members on this side of the House who smoke expensive cigars are not very much disturbed at the fact that they pay a very high price for them. Hon. Members on the other side are equally bad. They do not mind when buying an ounce of tobacco or a packet of cigarettes paying sixpence and receiving a halfpenny worth of tobacco, the other 5½d. being tax. Because they are getting some tobacco for their 6d., they are quite satisfied.

A few years ago one of my employés in a business in which I was interested came to me and said "Look at this, Mr. Gray, I have a claim for Income Tax." When I looked at it, I saw it was in order and that it was due. I said to him: "There is only one way of getting out of it; I can reduce your wages so that no Income Tax is payable, but otherwise there is no way out of it." He decided to pay the tax. My point is this: In dealing with taxation, you are dealing with the psychology of the citizens, which is an important problem. The real truth is that a working man will object very much more to paying a direct tax than a tax on his beer, tobacco, or spirits. He does not see it. Here is a striking thing. The Colwyn Committee investigated the incidence of taxation, and it is an incredible fact that to-day the agricultural labourer in this country is taxed more heavily in the pound than a man earning an income of £1,000 a year. That is, of course, if he is a moderate drinker. I was brought up a total abstainer, and have not contracted the habit of smoking, and, consequently, I am evading a large proportion of the taxes borne by other citizens. If you take an indirect tax, a large amount of it is a direct charge upon industry. Your twopenny cheque stamp, your twopenny receipt stamp may each seem totally unimportant, but, if you take a large distributive business with a large number of customers with small accounts of from £2 to £10 and issuing a large number of cheques and receipts, you find that it is a direct charge.

The reform I would urge upon citizens of this country, upon Members of the House, and upon the occupants of the Treasury Front Bench is that we ought to have reached the stage in the incidence of taxation when we should recognise that we ought to levy our taxation from two sources. We should levy it first in the form a Land Value Tax, the direct return to the community of those values which are created by the community. That tax is at the moment levied upon industry by others, and, if you bring it into the public purse, you will relieve the public purse of that share of its burdens. Secondly, levy a graduated tax and ask your workers to accept it right up from practically the beginnings of earnings up to the highest income. If you do that you may even do what we have never considered doing, combine local taxation with Imperial taxation, and have one taxing office which would collect your proportion for local taxation on the income earned in the locality, and would collect your proportion due to Imperial taxation from the amount of income you possess. I am not proposing that the Treasury Bench or the Chancellor of the Exchequer should incorporate a scheme of that sort in this year's Budget, or that we are likely to see it in my time, but the principle involved is that that method of raising money takes the money from the person who is able to pay. You have to retain your fund for capital services, but that fund for capital services does come, after all, from the poor man as well as the rich man. The man who keeps half-a-crown in the Post Office Savings Bank is contributing to the capital fund for investment. That sum in millions of pounds is available for investment. The amount of money which we do not expend at the time on consumable commodities is the money which, as a community, we are putting on one side available for investment.

We are going to help in two ways if we can devise taxation along these lines. The poorer section of the community, whose depressed state has to be helped by expenses from the public purse in various forms of social service, will find their measure of taxation reduced. The astounding thing is that under our present system we are to-day levying a rate of taxation upon the very poor people of this country which we should be aghast at if we measured it directly and saw the amount in money. That is a fact which cannot be resisted if you bring the whole amount of taxation under review. The more those people are left in possession of money, the larger will be the demand for consumable commodities, the greater the demand for consumption. We must recognise that our problem to-day is not so much a problem of production. Yet we are devising all kinds of schemes for restricting output, and a Bill which we shall be considering before long will be a Bill to compel people to work less and produce less.

The great problem is the problem of consumption. If you tax less the lower level of your community, that amount of money will be brought immediately into the demand for consumable commodities. You have to see that you do not, even in consumable commodities, expend the whole of your available capital. You have to have a fund available for capital development. If your taxation is levied along those lines, you release industry at once from that large volume of taxation, partly in rates and partly in taxes. The seconder was congratulating the late Government on the De-rating Bill. I do not for a moment congratulate them on that. It took the rates off the factory and left the whole of the rates on the people working in the factory, and surely they have to be paid out of the products of the factory just as much as if the factory paid. The other absurdity about it was that, having taken it off the product, it raised the money by a direct tax upon the progressive form of transport and put it back on the goods before they reached their destination, the most astounding system I ever heard of.

You can by a graduated scheme of taxation take off industry to-day every single tax which is a direct charge upon production, and you can raise the whole of the sum within the reserves left after the wage fund has been paid and still leaves a margin for capital. This is not the time nor is it right that we should in this House allow it to go forward in any sense whatever that capital is being defrauded in this country of its fair return. From the very point of confidence, we ought to make it clear that is not true. Of all the countries involved in the War except the United States of America which came in at the end, we are really the only country which has absolutely nursed and safeguarded the capitalist, securing him in his capital fund, and giving him an added interest to that which he was receiving.


I listened with a great deal of attention to the speech of the Mover, and, if one eliminates, all those little jokes and sweeps away the bulk of the verbiage, we find that he tried to establish two points, and two points only. The first point was that taxation definitely depletes the resources of the country, particularly the fund that goes to capital replacements and capital reproduction. He instanced the damage clone to industry by the taxation of undistributed reserves in the hands of limited companies. I am not going to dispute as to the effect of taxation upon the fund that goes to capital, but I am going to quote the second point which be made. He argued that the Chancellor of the Exchequer, when he tries to tax the rich, really finds that the whole of the taxation is paid by the working class. The hon. Member quoted the total income of the working class as £1,900,000,000. He definitely allocated the expenditure of taxations primarily to that £1,900,000,000. If the incidence of taxation is on the working class, he cannot at the same time claim that it depletes the source of saving because we know perfectly well the working class are not the source of saving.

The two points are mutually destructive. Either the hon. Member ought to take a stand upon the ground that it is a shame to tax the poor or upon the ground that capital is being definitely interfered with and that the replacement and reproduction of capital is being definitely hindered. He cannot claim that taxation is doing both these things, that it is falling on the workers alone and on capital alone. As the Financial Secretary said, their objection is that the social services are still growing. What is the alternative to these social services? There is no alternative to the social services but the workhouse. [An HON. MEMBER: "That is also a social service!"] The muddle-headedness of our captains of industry on this question if extraordinary. They object to taxation because they say that it interferes with industry, that it falls upon industry and prevents our competing efficiently with less taxed countries. The bulk of the taxation which goes to our social services, which are nationally organised, does not fall directly upon industry, does not enter into the cost of production and does not interfere with our competitive power. If you send your industrial unemployed to the work house, which is financed out of the rates, it is a definite and direct charge upon production, it enters into the cost of production and is a definite costing charge. If you prefer the workhouse to national social services, you still have to pay for the keep of the inmates, and often more expensively than under national services. Moreover, you are arranging your taxation then in such a way that instead of falling upon the profits that have been made it falls directly upon the cost of production and is a definite hindrance to our competitive power. Nobody likes high taxation, but if we must have high taxation I suggest that it is far wiser that that taxation should be nationally controlled and nationally imposed on the product of industry than that it should be locally imposed on the industrial processes, because in the one case it does not in any way interfere with our productive or competitive power, while in the other case, if locally imposed, it is a very serious hindrance.


In view of the very crowded state of the House —[Laughter]—I do not think that even on a Private Members' night I shall be keeping any Private Member from speaking. I should not like to miss the opportunity of thanking the Financial Secretary for having so clearly shown in his speech what is the difference between this Government and not only the last Government but preceding Governments. All Governments during the past few years have imposed high taxation. Some of them have reduced taxation during their term of office.


Is the Noble Lord suggesting that the Labour Government did not reduce taxation?


I meant that previous Governments have maintained high direct taxation, but this Government, according to the Financial Secretary, does not believe that high direct taxation is of any serious detriment to economic processes in this country. That is what distinguishes it from the preceding Governments. The reasons which the hon. Member adduced for that belief were very peculiar. I do not think he adduced any real reason. He appeared to be somewhat ruffled at the mild remarks made by the hon. Member who moved the Motion, and retaliated by talking about my hon. Friend's muddled economics, but when he came to produce his own they amounted to very little except references, explicit or implicit, to the Colwyn Report. He said that the Colwyn Report was drawn up by very eminent economists. That is so, but the objection I have is not so much to what it said but what it enables other people to say that it said. I do not accuse the Financial Secretary, who is an acknowledged authority on these matters, of not having read the Report closely, but he gave an extraordinarily misleading account of its purport. That Report was not as well drafted as it might have been. It discussed the effect of direct taxation and, roughly speaking, it came to the conclusion that for the purposes of maintaining a higher Sinking Fund for the repayment of debt, direct taxation at its present level could not be said to be seriously hampering to industry. That conclusion was very distinctly based upon the premise that high direct taxation was to be used for the repayment of debt.

That is a very large question, into which it is too late for me to enter now, but the real point that needs to be driven home is that it is quite true that as between various forms of taxation some, semi-directly and obviously and injuriously, increase the cost of production. All taxation has, in the long run, the effect of increasing the cost of production, but the fact that a particular form of tax is not obviously and immediately related to any of the elements in the cost of production does not affect the argument that its ultimate incidence is upon the cost of production. You cannot subject the proceeds of capital, the return on capital, to high taxation without making capital dearer. Cheap capital is the thing which industry needs above all things else at the present time. As the hon. Member for East Leicester (Mr. Wise) said in a previous Debate, that is one of the chief needs of industry. High taxation does, pro tanto, make capital dearer. High direct taxation, therefore, can only be justified on the demonstration of the benefits which it confers as a consequence of the way in which the proceeds of that taxation is spent.

The thesis, more or less, of the Right Wing and the Left Wing of the party opposite is that high direct taxation is justified for social services, because they redistribute wealth. What needs to be driven home at the present time is the terrible fallacy and illusion of that statement. What are you redistributing by taxation? In what form is all this wealth that the State collects in taxation passed on to the poor? Is it in the form of property? Is it in the form of wealth upon which the working man can rely, as the comparatively rich man can rely upon his accumulated or inherited savings? No. It goes to the working man in the form of weekly benefit, sufficient only for his weekly needs, Health Insurance benefit, Unemployment Insurance Benefit, reduction in the amount of his weekly rent for a subsidised house, the right to the use of one-fortieth of a school class-room and the right to one-fortieth of the services of a State-paid teacher. These are the things that you are passing on.

What is it that creates the inequality between the rich and the poor at the present time, which all social policies seek to relieve? It is that the comparatively rich live by the year, while the comparatively poor live by the week and cannot look beyond it, and we are not doing anything by this redistribution of wealth to improve that position or to remove that disability. We are only intensively making the working man live by the week, and not able to look beyond it. In addition, every one of these weekly benefits which we pass on are subject to State regulation and State control of one kind or another, so that the cumulative effect of these things is not to give the working man what all of us want to give him, namely, increased economic independence but, on the contrary, its effect is, if anything, to give him increased economic dependence upon the State, to force him more and more to comply with and to conform to State regulations, local and central, and always on a weekly basis.

That is the will o' the wisp that all parties in this country have been following. We have built up social services of enormous value, which have conferred great benefits upon the working classes, but we have not taken the first step towards increasing the working man's economic independence, and the time has come when we should clearly recognise that a new chapter of social policy must be opened, a chapter which aims at greater economic independence for all classes in this country, and which can be reached not by a policy of high taxation but by a policy of low taxation.


In the two minutes that are left to me I should like to say a few words on this important subject. Realising the importance of the question of high taxation, I am surprised that there are not more hon. Members opposite present. There are only 14 Conservative Members in the House. [HON. MEMBERS: "Count your own side!"] We did not put down the Motion. You put down the Motion. The Noble Lord deplores the fact that we are spending so much money upon the social services. I wonder what we are to do with our unemployed. What are we to do with those who fall by the wayside I When people, through no fault of their own, find that their services are not required, are we to treat them as the thrifty house wife treats the frequent progeny of the female cat? Shall we starve them, drown them, or what shall we do with them? What should we do without our social services? As to the question, who is to pay for them, I would say that the people should pay for them who have the money. No one likes paying taxes, but someone has to pay taxes. I would remind hon. Members opposite that all the Income Tax and Super-tax that is paid goes towards paying the interest on the War debt. Not one farthing of Super-tax and Income Tax goes to pay for social services. The workers pay in indirect taxation.


rose in his place, and claimed to move, "That the Question be now put," but Mr. SPEAKER withheld his assent, and declined then to put that Question.

It being Half-past Seven of the Clock, and there being Private Business set down by direction of the Chairman of Ways and Means under Standing Order No. 8, further Proceeding was postponed without Question put.